Executive Summary / Key Takeaways

• Unisys is executing a focused transformation strategy centered on enhancing free cash flow through operational efficiency, improving cash conversion, and expanding its solution portfolio, particularly in its Ex-License and Support (Ex-L&S) business, while strengthening its high-margin License and Support (L&S) segment.
• Recent financial performance, including Q1 2025 results and full-year 2024 achievements, demonstrates progress in Ex-L&S gross margin expansion driven by delivery optimization and accretive new business, coupled with unexpected strength and increased outlook in the L&S business.
• Strong new business momentum, especially in new logo signings (up >80% YoY in Q1 2025 TCV), and a robust pipeline provide confidence in sequential revenue improvement throughout 2025 and underpin expectations for future Ex-L&S growth.
• The company's diverse portfolio, anchored in non-discretionary spend across varied geographies and industries, along with a high proportion of recurring revenue from longer-term contracts, provides resilience against macroeconomic uncertainty and competitive pressures.
• Management reiterates full-year 2025 guidance for constant currency revenue growth (0.5% to 2.5%) and non-GAAP operating profit margin (6.5% to 8.5%), with expectations to finish above the midpoint of the profitability range, supported by L&S upside and efficiency gains, targeting approximately $100 million in pre-pension free cash flow.

A Transformation Underway: Leveraging History for Future Growth

Unisys Corporation, a company with a history spanning over 150 years, is currently undergoing a focused transformation aimed at revitalizing its market position and enhancing shareholder value. Rooted in a legacy of secure, high-intensity enterprise computing, Unisys has strategically evolved its portfolio to address the modern demands of digital transformation, cloud adoption, cybersecurity, and the digital workplace. This strategic pivot, formalized at the June 2023 Investor Day, centers on driving profitable growth in its services business (Ex-L&S), while simultaneously maximizing the value and longevity of its core technology platforms (L&S). The company's approach is multifaceted, emphasizing operational efficiency, disciplined capital allocation, and targeted investments in solutions aligned with critical client needs.

The company operates through three reportable segments: Digital Workplace Solutions (DWS), Cloud, Applications & Infrastructure Solutions (CAI), and Enterprise Computing Solutions (ECS). This structure, refined in January 2025 to better align capabilities and leverage synergies (centralizing application development in CAI and integrating business process solutions), reflects a strategic focus on delivering integrated, mission-critical offerings.

The Technological Core and Its Expanding Ecosystem

At the heart of Unisys's differentiated offering lies its Enterprise Computing Solutions (ECS) segment, particularly the License and Support (L&S) business built around the ClearPath Forward operating systems. These platforms are renowned for their secure, high-volume transaction processing capabilities, critical for clients in financial services, public sector, and travel and transportation. The ClearPath Forward 2050 strategy underscores the company's commitment to this core technology, aiming to expand its ecosystem and drive consumption. This strategy has three key pillars: delivering innovative capabilities directly on the platforms, enabling secure data exchange to unlock valuable data for AI and analytics, and providing specialized services and support to modernize the surrounding IT environment.

Specific, quantifiable performance metrics comparing ClearPath Forward directly against all competitor platforms in terms of raw processing speed or cost per transaction were not detailed, but management emphasizes its value proposition around security and reliability for mission-critical workloads. The launch of a new ClearPath Forward release in Q4 2024, incorporating enhancements for performance, scalability, security, and preparation for Post-Quantum Cryptography (PQC) challenges, highlights ongoing investment. The introduction of a PQC cryptographic posture assessment solution in Q1 2025 further demonstrates a forward-looking approach to security, positioning Unisys to help clients defend against future quantum threats.

Beyond the core, Unisys is actively developing and integrating emerging technologies across its portfolio. In AI, the company is not just offering consulting but embedding AI into its solutions and delivery. The Service Experience Accelerator, a GenAI framework for the service desk, is gaining traction, designed for deployment within a client's network to leverage operational data securely. The Intelligence Accelerator framework connects disparate data sets for AI consumption, and the company is exploring agentic AI for data cleansing. In its Logistics Optimization offering, Unisys is leveraging both AI and Quantum Annealing, rolling out multi-modal routing capabilities. These investments aim to enhance the value proposition, drive efficiency, and create new revenue streams. While precise, quantifiable benefits of these emerging technologies (e.g., percentage reduction in service desk resolution time via AI, efficiency gains from Quantum Annealing) were not consistently detailed, the strategic intent is clear: to leverage technology to deliver better outcomes and operational efficiency for clients.

Navigating the Competitive Currents

The IT services market is intensely competitive, featuring a mix of large global players and specialized niche providers. Unisys competes across its segments with companies like IBM (IBM), Hewlett Packard Enterprise (HPE), Cognizant Technology Solutions (CTSH), and NICE Ltd. (NICE).

Compared to larger, more diversified competitors like IBM and HPE, Unisys operates at a significantly smaller scale. IBM, for instance, commands a much larger market share (estimated ~8.5-9.7% in relevant segments vs. UIS's estimated ~0.27%) and demonstrates stronger financial performance with higher net margins (~10% vs. UIS's TTM net margin of -3.76%) and ROE (~12-15% vs. UIS's TTM ROE of 0.68%). HPE, specializing in infrastructure, also shows higher operating margins (~8% vs. UIS's TTM operating margin of 4.31%). These larger players benefit from scale, extensive R&D budgets (IBM's R&D is significantly higher than UIS's ~$25M-$28M annually), and broader global reach.

Cognizant, a major IT services provider, also exhibits stronger profitability metrics (net margin ~9%) and growth rates than Unisys. NICE Ltd. , focused on customer engagement and cybersecurity software, shows particularly strong growth (~15-20%) and high net margins (~15%).

Despite being smaller, Unisys strategically positions itself by leveraging its legacy strengths and focusing on differentiated solutions and customer relationships. Its deep expertise in mission-critical enterprise computing (ECS) provides a sticky client base. The company's focus on specific industry verticals (public sector, financial services, travel & transportation) allows for tailored solutions. In DWS and CAI, Unisys is emphasizing integrated, cross-segment offerings and investing in areas like Device Subscription Services, managed security, and application modernization, where it seeks to differentiate through service quality, security (building on its Stealth heritage, though specific comparative metrics on Stealth vs. competitor security offerings weren't detailed), and AI-enabled tools.

The company's go-to-market strategy, including expanding its client technology officers and industry vertical teams, and intensifying its partner ecosystem (achieving Dell (DELL) Titanium partner status in Q1 2025), aims to improve market awareness and win rates. Recent recognition from industry analysts (Avasant, NelsonHall, IDC, Everest, ISG) as a leader or disruptor in areas like AI services, attack surface management, digital workplace, and cloud/infrastructure management validates its efforts to build relevance and get invited to more deals. While facing competitive pressure, Unisys believes its focus on specific solutions, operational efficiency, and building deeper client relationships allows it to chart its own path and gain market share, as evidenced by the significant increase in new logo signings.

Performance Reflecting Strategic Execution

Unisys's recent financial performance reflects the ongoing execution of its transformation strategy, albeit with some expected lumpiness due to the timing of large contracts, particularly in the L&S segment.

For the first quarter of 2025, Unisys reported total revenue of $432.1 million, down 11.4% year-over-year (8.5% in constant currency). This decline was primarily driven by the timing of L&S software license renewals and lower volume in the Ex-L&S business. L&S revenue specifically decreased to $71.1 million in Q1 2025 from $93.2 million in Q1 2024. Ex-L&S revenue was $361.0 million, down 8.5% year-over-year (5.5% in constant currency), impacted by lower discretionary volumes and a tough comparison to a prior-year period that included a one-time benefit.

Despite the revenue decline, the company demonstrated progress in operational efficiency. Gross profit margin in Q1 2025 was 24.9%, down from 27.9% in Q1 2024, largely due to the lower L&S revenue mix. However, the Ex-L&S gross profit margin, at 17.8%, showed resilience and improved year-over-year when adjusting for the prior-year one-time item, reflecting ongoing delivery and labor optimization efforts. Selling, general and administrative (SG&A) expenses decreased significantly, down nearly 14% year-over-year to $96.8 million, contributing to profitability improvement below the gross margin line.

Operating income for Q1 2025 was $5.1 million, down from $17.7 million in Q1 2024, again primarily impacted by the L&S timing. The consolidated net loss attributable to Unisys Corporation improved substantially, coming in at $29.5 million ($0.42 per diluted share) in Q1 2025 compared to a loss of $149.5 million ($2.18 per diluted share) in Q1 2024. The prior year period included a significant $132.3 million U.S. pension plan settlement loss.

Looking at broader trends, full-year 2024 results showed total revenue of $2.01 billion (down 0.3% YoY), but significant improvements in profitability and cash flow. Full-year 2024 non-GAAP operating profit margin reached 8.8%, exceeding the top end of the company's upwardly revised guidance range, driven by enhanced Ex-L&S margins (up 250 bps YoY to 17.6%), L&S upside, and SG&A efficiencies. Pre-pension free cash flow nearly doubled in 2024 to $82 million, demonstrating improved cash conversion.

The company's liquidity position remains strong. As of March 31, 2025, cash and cash equivalents stood at $393.1 million, up from $376.5 million at year-end 2024. Cash provided by operations increased to $33.3 million in Q1 2025 from $23.8 million in Q1 2024, primarily due to working capital improvements. The company has access to a $125 million ABL facility (with a $155 million accordion) which was undrawn as of March 31, 2025, with $82.5 million availability. Total debt was $494.8 million. The company is actively monitoring market conditions for potential opportunistic refinancing of its 6.88% Senior Secured Notes due November 2027 and further pension mitigation efforts.

Momentum and Outlook

A key indicator of future performance is the company's new business momentum. In Q1 2025, new business Total Contract Value (TCV) was $337 million, up significantly (>50% sequentially and >80% year-over-year), driven by sustained new logo signings. This builds on strong new business TCV growth in 2024 (up 29% YoY) and a more than doubling of new logo TCV. This new business, particularly multi-year contracts signed in the latter half of 2024, is expected to ramp up and contribute to sequential revenue improvement throughout 2025. Backlog stood at $2.89 billion as of March 31, 2025, up 4% year-over-year, driven primarily by new logo contracts in DWS.

Management reiterated its full-year 2025 guidance:

• Total company revenue growth: 0.5% to 2.5% in constant currency (equating to -1.1% to 0.9% reported based on Q1 2025 FX rates).
• Non-GAAP operating profit margin: 6.5% to 8.5%.

Management expressed confidence in achieving profitability above the midpoint of the guidance range, citing expected enhanced delivery operational efficiencies and an improved outlook for L&S revenue. The L&S revenue assumption for 2025 was increased to approximately $410 million (from $390 million), primarily due to longer terms expected on certain Q4 2024 renewals and incremental hardware. For 2026, L&S revenue is still expected to be approximately $400 million, reflecting favorable consumption trends. The average annual L&S revenue for 2025/2026 is now expected to be around $395 million, up from a prior expectation of $370 million.

For 2025, the company expects approximately $100 million of pre-pension free cash flow and slightly positive free cash flow after pension contributions. This cash flow outlook is supported by expected improvements in cash conversion, with environmental, legal, restructuring, and other payments projected to be a net positive $10 million, including the collection of the remaining $25 million from the favorable legal settlement reached in Q4 2024. Cash outlook assumptions include approximately $95 million for capital expenditures, $70 million for cash taxes, and $15 million for net interest payments (excluding potential refinancing).

Looking specifically at Q2 2025, management expects Ex-L&S revenue of approximately $375 million (mid-single digit sequential growth), with L&S revenue similar to Q1 due to renewal timing. This translates to an expected total company reported revenue decline of 7-8% and a slightly positive non-GAAP operating margin in Q2. The significant sequential improvement in growth and profitability is anticipated in the back half of the year as Ex-L&S revenue ramps and L&S revenue takes a meaningful step up in Q3 and Q4.

Risks and Considerations

While the outlook is positive, several risks warrant investor attention. Macroeconomic and geopolitical uncertainties, including potential tariffs and trade restrictions, could impact client spending and decision timing, although Unisys believes its diversified, non-discretionary portfolio provides relative resilience. The realization of deferred tax assets is dependent on generating sustained taxable income, and changes in judgment regarding valuation allowances could materially impact the tax provision. The company's ability to utilize U.S. net operating loss carryforwards could be limited by future ownership changes under Section 382.

Significant underfunded defined benefit pension obligations require substantial future cash contributions ($91 million in 2025, $122 million in 2026), which could strain liquidity if cash flow from operations is insufficient. Volatility in capital markets or changes in actuarial assumptions could alter these requirements. Environmental liabilities ($23 million estimated) and ongoing legal proceedings (including approximately $92 million in unreserved Brazilian tax matters) also present potential financial exposures, although the company has established provisions and expects a partial reimbursement for environmental costs.

Conclusion

Unisys is executing a clear transformation strategy focused on operational efficiency, portfolio enhancement, and disciplined financial management. Despite facing a challenging macroeconomic backdrop and competitive pressures from larger, well-funded rivals, the company is demonstrating tangible progress. The significant increase in new business signings, particularly new logos, signals growing market traction for its refined solution portfolio. Coupled with ongoing improvements in Ex-L&S gross margins driven by delivery optimization and accretive new business, and a surprisingly resilient and even growing L&S business, Unisys appears well-positioned for sequential revenue and profitability improvement throughout 2025.

The reiteration of full-year guidance, with a stated path to exceeding the midpoint of the profitability range and a target of $100 million in pre-pension free cash flow, underscores management's confidence in their strategic execution. While risks related to macroeconomic conditions, pension obligations, and legal liabilities persist, the company's diversified revenue base, focus on recurring contracts, and efforts to improve cash conversion provide a degree of resilience. For investors, the story hinges on Unisys's ability to continue translating new business momentum and operational efficiencies into sustained profitable growth and enhanced free cash flow, leveraging its technological foundation and strategic positioning in a competitive landscape.